Scenario Planning for an Uncertain Future

By Peter Cappelli

The state of the economy continues to dominate the headlines. But, now, instead of a storyline that says, “Why is the recovery so modest?” we’ve moved to, “Are we sure we have a recovery?”

The threat of falling back into a recession becomes more real every day, particularly with continued cutbacks in government spending.

Most employers are asking themselves, What should we do? Should we continue on with our plans, which, typically, were for modest expansion and hiring over the next year? Should we get a jump on cost-cutting in case there is a double-dip recession? Or should we do something entirely different?

What makes the current uncertainty so unnerving is that, in relative terms, we had been having a period when there was actually considerable consensus on what was happening: The economy was still lousy, but it had turned the corner and was slowly heading in the right direction.

We’ve had that consensus for a couple of years now. The story wasn’t terrific, but it was actually one of the longest periods in recent memory where there appeared to be real certainty as to what was going on.

So what happens now? We sometimes hear that real leadership is about setting a course and sticking to it. Not! That’s just stubbornness.

Sticking to the plan you have just because you have a plan is a recipe for being really, really wrong. We have to respond to changes in the world around us. The problem now is that we don’t yet know what the changes are.

There is an argument for doing nothing, but that’s not necessarily a good idea either, especially in the corporate world where answers and actions are expected. We have to respond.

Here’s what to do. We’re going to do scenario planning for human resources, but we’re going to do so by engaging the senior leadership of the organization — those responsible for strategy — in doing it to aid their decisions as well as our own.

First, talk to whoever is in charge of setting strategy, goals, direction for the organization. Ask them what the two most important uncertainties are right now that will affect the future of the operation in the next year or so.

Why only a year or so into the future? Because in practice, almost no organization has real plans that go out any further. If they do, they update them, which is another way of saying they change them.

Second, go back to your office and draw up a two-by-two matrix of the uncertainties. For each uncertainty, see if you can create two opposite responses for each. For example, will the economy continue a slow recovery? Or will it fall back into recession? Will the company get the big government contract or not?

Third, create the matrix with two rows representing the two outcomes for the first uncertainty (e.g., the economy will continue to grow, and the economy will fall back into recession) and two columns representing the two outcomes for the second uncertainty (e.g., we get the contract or we don’t).

Now, we have four boxes in the middle, representing the possible states of the world associated with the two most important uncertainties (e.g., the first one might be the economy grows and we get the big government contract).

It becomes obvious when looking at the matrix why we shouldn’t ask for more uncertainties — because it generates too many boxes to keep straight!

Fourth, for each box, tell the human resource story associated with it. What happens if the organization lands in each box? Staffing requirements might be the most important part of the story, but lots of other issues — such as retention, morale, litigation, etc. — could fit in as well.

Fifth, give it to your leadership team.

Why is this useful? Among other things, it addresses uncertainty, which is their biggest strategic concern at the moment. It shows that you know how to think through that problem. It gives them some information that could help their planning and decision-making.

It brings you and HR into the front-end of any decisions they make, which is much better than the common situation of being at the end of the process, where you have no input but still get blamed when there are strategy-related human resource problems. It demonstrates that you, as a leader, understand how to contribute to the strategy process.

And, in terms of career risk management, it does no harm. You’re doing something useful while waiting to see what happens.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. His latest book, with Bill Novelli, is Managing the Older Worker: How to Prepare for the New Organizational Order.

This article was originally published on September 2011.




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